Part of a series on capital flows and political risk in Latin America
As Western institutional investors and Chinese state-backed lenders compete for influence over Latin America’s energy infrastructure, one factor is quietly determining who builds the region’s clean-energy future: the cost of capital. File Photo by Stephen Shaver/UPI | License Photo
As Western institutional investors and Chinese state-backed lenders compete for influence over Latin America’s energy infrastructure, one factor is quietly determining who builds the region’s clean-energy future: the cost of capital.
Countries that compress financing costs through policy stability and structured green credit mechanisms are attracting investment that higher-risk environments cannot. In this contest, Brazil and Mexico are pulling ahead.
In earlier installments of this series, we examined how political instability in Venezuela and Ecuador drives the weighted average cost of capital (WACC) to prohibitive levels. Elevated country-risk premiums and regulatory volatility raise borrowing costs and deter equity participation, even in resource-rich economies. Brazil and Mexico present a different dynamic — and one increasingly consequential for the region’s place in a reconfiguring global capital order.
The green transition is not merely environmental policy. It is a capital allocation strategy.
How policy reduces the cost of money
WACC reflects the blended cost of equity and debt financing. Investors price equity based on a benchmark rate, typically U.S. Treasury yields, layered with market risk, country risk and project volatility. When regulatory uncertainty rises, perceived volatility increases and capital becomes more expensive. When governments provide tax incentives, development bank support and stable regulatory frameworks, perceived risk declines and financing costs compress.
The International Energy Agency has documented that clean energy financing costs in many emerging markets are often double those in advanced economies. In Brazil and Mexico, however, renewable projects are increasingly securing financing at 1 to 2 percentage points below comparable fossil-fuel investments. In capital-intensive sectors, even a 1 percentage point shift can determine whether a project proceeds.
Brazil: Building the right financial scaffolding
Brazil already derives roughly 88% of its electricity from renewable sources, giving it one of the lowest per-capita emissions profiles among G20 countries. Wind and solar alone accounted for nearly a quarter of electricity generation in 2024.
The next frontier is offshore wind. With more than 7,000 kilometers of coastline and a formal regulatory framework enacted in 2025, Brazil is positioning itself as a major future player.
The country’s financing architecture helps explain why. The state development bank, BNDES, has supported the majority of renewable energy projects since 2000. In 2024, the government launched EcoInvest Brasil, a blended-finance initiative that mobilized $8.2 billion in its first auction for clean energy projects. Developers also benefit from long-term power purchase agreements secured through competitive federal auctions and access to green credit lines from both public and private banks.
Solar capacity surpassed 55 gigawatts in 2025, more than doubling in two years, and auction prices fell below $32 per megawatt-hour in some cases.
The result is measurable risk compression. Offshore wind projects increasingly compete with traditional oil investments on financial grounds. For U.S. and European institutional investors seeking long-duration infrastructure exposure, Brazil’s renewable sector now offers one of the more stable, risk-adjusted entry points in Latin America.
Mexico: Solar potential meets regulatory sensitivity
Mexico’s energy landscape is more complex. Federal reforms have strengthened the role of state-owned entities, introducing regulatory uncertainty into certain markets.
Yet solar development continues to expand. The country added 1.6 gigawatts of photovoltaic capacity in 2024, bringing total installed solar capacity to 12.6 gigawatts, the third-highest in Latin America. The flagship Puerto Peñasco solar complex in Sonora, now under construction, will reach 1 gigawatt of capacity with more than $1.7 billion in investment, alongside battery storage expansion.
Mexico’s integration into North American supply chains under the USMCA provides a structural floor for electricity demand. The nearshoring boom has intensified industrial demand in the north, and national energy infrastructure needs are projected to exceed $40 billion over the next five years.
However, regulatory risk remains a variable. Private investors must navigate evolving permitting requirements, and recent asset sales by Spanish energy giant Iberdrola underscore that legal uncertainty affects capital decisions. If policy conditions deteriorate further, financing advantages could narrow quickly.
For now, solar projects in high-irradiation regions continue to secure competitive financing terms, supported by development funds and long-term industrial demand.
Net zero as a capital competition
The core insight is simple: Net Zero is ultimately a financing equation.
Subsidies, regulatory clarity and predictable permitting processes reduce capital costs. Lower capital costs make renewable projects competitive, often before technology alone would justify the transition.
Where political instability raises risk premiums, climate ambitions become financially unrealistic. Where policy alignment lowers risk, capital accelerates the shift.
The implications extend beyond climate policy. China’s policy banks have lent more than $120 billion to Latin America since 2005, much of it directed to energy. While oil-backed mega-loans have slowed, Chinese engagement is pivoting toward green infrastructure. In 2025, Chinese investment in wind, solar, and other renewable projects hit a record $18.3 billion globally, as manufacturers seek overseas markets for their clean-tech exports.
This creates a strategic choice for the region. Countries that offer transparent, lower-risk financing environments are more likely to attract Western institutional capital and the technology partnerships that accompany it. Those that introduce regulatory unpredictability may find alternative state-backed financing filling the gap.
Brazil is leveraging its renewable track record and financing architecture to position itself as a preferred entry point for global clean-energy capital. Mexico is capitalizing on solar abundance and North American integration, though regulatory sensitivities will require careful management.
In Latin America’s energy transformation, ideology will matter less than capital discipline. The countries that consistently provide stable, lower-cost financing environments will determine who builds the region’s Net Zero future and who ultimately controls it.
In the next installment, we examine ESG bonds and innovative instruments reshaping capital flows across the region.
César Addario Soljancic is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean. Over his career, he has led 69 capital-market issuances across 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.
